In recent months, gold has seen significant price surges, driven by increasing demand for safe-haven assets as trade tensions and U.S. policy shifts have rattled markets. Traditionally, U.S. Treasurys and the dollar have been the go-to safe havens for investors during times of uncertainty, but as these assets have weakened, gold has emerged as the preferred choice for those seeking stability.
Gold’s rise has been particularly notable amidst the turbulence sparked by President Donald Trump’s trade policies, including tariffs that have sparked uncertainty in global markets. According to analysts, gold has “stepped into the void” left by a decline in the safe-haven appeal of the U.S. dollar and Treasurys.
The Shift from U.S. Assets to Gold
While U.S. Treasurys have historically been viewed as a safe-haven investment, recent weeks have seen a sell-off in these securities. The 30-year Treasury yield recently hit its highest level since November 2023, signaling a decline in demand for government bonds. Concurrently, the U.S. dollar index has weakened by about 8% this year, further diminishing its appeal among investors.
Gold, on the other hand, has soared in value. As of recent data, spot gold prices have risen 25% this year, with forecasts from J.P. Morgan predicting an average price of $3,675 per ounce by the fourth quarter of 2025 and a potential $4,000 per ounce by the second quarter of 2026.
Factors Driving the Gold Rush
The relationship between gold and Treasury yields has traditionally been inverse—higher yields make bonds more attractive relative to gold, which doesn’t offer interest. However, this dynamic seems to have broken down in recent months. Analysts attribute this to a variety of factors:
Inflation Hedge Appeal: With tariffs expected to drive inflation in the U.S., gold is being increasingly viewed as a hedge against rising prices, which is drawing investors away from Treasurys. Michael Ryan, a lecturer at the University of Waikato, highlighted that gold’s historical reputation as an inflation hedge makes it an appealing alternative to U.S. bonds during times of rising inflation.
Loss of Confidence in U.S. Assets: Many investors are growing wary of U.S. assets, particularly in light of geopolitical and economic uncertainties. Soni Kumari, a commodity strategist at ANZ, explained that markets are losing trust in U.S. financial instruments, with President Trump’s tariff war seen by many as a policy misstep. This growing skepticism is increasing gold’s appeal, as it is seen as independent from any single nation’s monetary or fiscal policy.
Gold’s Lack of Credit Risk: Unlike currencies or government bonds, gold is not tied to the economic or political situation of any single country. This characteristic has made it particularly attractive during times when investors are questioning the stability of traditional financial assets. Alexander Zumpfe, a senior precious metals trader at Heraeus, emphasized that gold carries no credit risk and is not impacted by the political or economic trajectory of any one nation, making it a safer bet in volatile times.
Weaker U.S. Dollar: A declining dollar also makes gold more attractive to foreign investors, as commodities priced in dollars become cheaper. As the dollar weakens, gold becomes a more appealing investment for holders of other currencies, further boosting demand for the metal.
The Role of Emerging Markets and De-Dollarization
Emerging market central banks, which have traditionally held fewer gold reserves compared to their developed counterparts, have also been increasing their gold purchases. According to Eli Lee, Chief Investment Strategist at Bank of Singapore, these central banks are diversifying their holdings away from dollar-based assets. The recent sell-off in the dollar has led to discussions about “de-dollarization” and a potential shift toward gold as a reserve asset.
While some have floated the idea of gold replacing the U.S. dollar as the primary global reserve currency, experts like Vivek Dhar from Commonwealth Bank of Australia argue that this is unlikely. The costs of transporting and storing gold, combined with the fact that it is a non-interest-paying asset, make it less practical for central banks in the long term. Additionally, the U.S. Treasury remains the most liquid market in the world, and replacing it as the ultimate safe-haven asset is not expected to happen anytime soon.
Conclusion: The Future of Gold
Despite the uncertainties surrounding U.S. Treasurys and the dollar, gold’s standing as a safe-haven asset is likely to continue. As geopolitical risks persist and inflation pressures mount, gold’s appeal as a hedge against instability will remain strong. Although a dramatic shift away from the U.S. dollar and Treasurys is unlikely, the current trend of increasing gold prices reflects a broader loss of confidence in traditional financial assets and a growing preference for the stability and independence that gold offers.
Related topics: